CLA-02 RR:CTF:VS 563205 EAC
Area Service Port Director
Service Port of Pembina
U.S. Customs and Border Protection
112 West Stutsman Street
Pembina, ND 58271
RE: Protest and Application for Further Review 3401-04-100023; Steel Safeguard Measures; Subheading 9903.73.85, HTSUS; Subheading 7305.31.40, HTSUS.
Dear Port Director:
The above-referenced protest was forwarded to this office for further review. We have considered the evidence provided with the protest, as well as the points raised by your office and the protestant. We have additionally evaluated information submitted to this office on behalf of the protestant by facsimile transmissions of June 23, July 12, and July 18, 2005.
FACTS:
The case under consideration pertains to certain steel pipe that was entered into the United States at the U.S. Port of Portal in North Dakota on November 10, 2003. The entry was liquidated on September 24, 2004, and the above-referenced Protest and Application for Further Review was filed on behalf of Indutech Canada Limited (hereinafter “protestant”) on December 23, 2004. The protest was, therefore, timely filed. The protestant has verified that the operations performed on the subject steel pipe are identical to those set forth in Headquarters Ruling Letter (“HRL”) 082183 dated March 3, 1989, which was also issued to the protestant.
The protestant is a manufacturer of “Naspipe” abrasion resistant steel pipe that is intended for use in hydraulic slurry and pneumatic conveyance systems. The pipe is processed in Canada from an “unfinished” high carbon steel pipe that is manufactured in Japan. As described in HRL 082183, the processing operations performed on the pipe in Canada include:
heating to the austentizing temperature range (1,500 degrees Fahrenheit) by means of induction coils;
water-quenching the inner wall with a system that uses a lance filled with a sprayer head;
quality assurance testing for hardness and ovality, and for camber and performance under hydrostatic conditions; and
performing supplementary fabrication, if required.
It is our understanding that the microstructure of the pipe is altered during heat treatment such that the treated pipe possesses the properties necessary for durability and abrasion resistance in slurry systems.
The imported steel under consideration was liquidated with “Section 201” duties (discussed, infra) under subheading 9903.73.85, Harmonized Tariff Schedule of the United States (“HTSUS”). The protestant contends that imposition of such additional duties in this case was improper because the steel pipe, as a product of Canada, was not subject to Section 201 duties for steel.
ISSUE:
Whether Section 201 steel safeguard duties were properly assessed under subheading 9903.73.85, HTSUS.
LAW AND ANALYSIS:
As noted in Presidential Proclamation 7529, issued on March 5, 2002, the United States International Trade Commission (“ITC”) transmitted to the President a report on its investigation under section 202 of the Trade Act of 1974, as amended (the “Trade Act”) (19 U.S.C. §2252), with respect to imports of certain steel products. See, 67 Federal Register 10553 (March 7, 2002). The report noted that the ITC had reached affirmative determinations under section 202(b) of the Trade Act that certain enumerated steel products were being imported into the United States in such quantities as to be a substantial cause of serious injury, or threat of serious injury, to domestic industries producing like or directly competitive articles. In light of the ITC’s findings, Presidential Proclamation 7529 provided for Section 201 Relief for Certain Steel Products (“Section 201 duties” or “steel safeguard measures”) that were designed to facilitate the positive adjustment from imports of certain steel products.
However, Presidential Proclamation 7529 also provided, in pertinent part, that:
(2) Such imports of certain steel that are the product of Canada, Israel, Jordan, or Mexico shall be excluded from the safeguard measures established by this proclamation, and such imports shall not be counted toward the tariff rate quota limits that trigger the over-quota rates of duties.
Presidential Proclamation 7741, issued on December 4, 2003, terminated the assessment of Section 201 duties on subject steel products that were entered or withdrawn from warehouse for consumption on or after 12:01 a.m., EST, December 5, 2003. See, Presidential Proclamation 7741 contained in 68 Fed. Reg. 68483 (December 8, 2003). Therefore, certain steel products entered after March 20, 2002, and prior to December 5, 2003, remain subject to the Section 201 duties for steel.
Presidential Proclamation 7529 specifically authorized the assessment of additional duties on steel products set forth under subheading 9903.73.85, HTSUS, other than products of Canada, Israel, Jordan, and Mexico and products of countries exempted by U.S. Note 11(d) to Subchapter III, Chapter 99, HTSUS. Steel products classified under subheading 7305.31.40, HTSUS, were among the products subject to the steel safeguard measures pursuant to subheading 9903.73.85, HTSUS. Subheading 9903.73.85, HTSUS (2003), provided for:
Welded, riveted or similarly closed tubes, pipes and hollow profiles, the foregoing of steel (other than stainless or tool steel), not of a kind used in drilling for oil or gas (provided for in subheading … 7305.31.40 …), other than products of Canada, Israel, Jordan and Mexico and products of countries exempted by U.S. note 11(d) to this subchapter (except products of Thailand): Other: If entered during the period from March 20, 2003, through March 19, 2004, inclusive …
The “General” and “Special” subcolumn provided for the rate of duty provided in Chapter 73, HTSUS, plus 12%.
It is not disputed that the imported steel products in this case were properly classified under subheading 7305.31.40, HTSUS, which provides for:
Other tubes and pipes (for example, welded, riveted or similarly
closed), having circular cross sections, the external diameter of
which exceeds 406.4 mm, of iron or steel: Other, welded:
Longitudinally welded: Other: Of iron or nonalloy steel.
However, the protestant contends that the imported steel products are a product of Canada and are, therefore, exempt from the steel safeguard measures. In support of this position, the protestant cites HRL 082183, in which CBP held that identical processing performed in Canada substantially transformed steel from the U.K. into a product of Canada for tariff purposes. The issue before us, therefore, is whether the substantial transformation analysis undertaken in HRL 082183 remains applicable to the facts of this case or whether steel products from Canada must be NAFTA originating pursuant to General Note 12(b), HTSUS, for purposes of subheading 9903.73.85, HTSUS.
Based on the information before us, it does not appear as if steel products from Canada are required to be NAFTA originating for purposes of subheading 9903.73.85, HTSUS. The “Special” subcolumn only provided for the rate of duty provided in Chapter 73, HTSUS, plus 12%. A steel product could still be considered a product of Canada without being able to meet the General Note 12, HTSUS, NAFTA requirements for obtaining preferential treatment. Therefore, as subheading 9903.73.85, HTSUS, is written, we conclude that the country of origin determination in this case should be premised on a traditional substantial transformation analysis. As applied, we find that the heat treatment operations performed in Canada constitute a substantial transformation. As in HRL 082183, we note that the heat treatment processing requires a significant time commitment and critical control in order to impart the specific quantity of surface hardness that is required for hydraulic slurry pipe systems. This processing ultimately results in a finished product that has a new character and use because the pipe’s microstructure and physical properties are altered such that the treated pipe meets the specialized requirements for use in piping systems. Accordingly, the country of origin of the steel for purposes of subheading 9903.73.85, HTSUS, is Canada. Therefore, as a product of Canada, the imported steel in this case is not subject to the Section 201 duties for steel. Please be advised, however, that the country of origin of the steel for marking purposes should be determined pursuant to the “NAFTA Marking Rules” of Part 102 of the Customs and Border Protection Regulations (19 CFR Part 102).
HOLDING:
Based on the specific facts of this case, we find that the steel under consideration is a product of Canada for purposes of subheading 9903.73.85, HTSUS, and is not subject to the Section 201 duties for steel.
Therefore, the protest should be granted in full.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division